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Mr. Yasser Abdih, Ms. Li Lin, and Anne-Charlotte Paret
Despite closing output gaps and tightening labor markets, inflation has remained low in the euro area. Based on an augmented Phillips Curve framework, we find that this phenomenon—sometimes attributed to low global inflation—has been primarily caused by a remarkable persistence of inflation, keeping it low despite the reduction in slack. This feature is shown to be specific to the euro area (in comparison with the United States). Monetary policy needs to stay accommodative to help guide inflation back to target.
Mr. Michal Hulej, Mr. Charalambos G Tsangarides, and Mr. Pierre Ewenczyk
This paper explores and quantifies several aspects of the performance of currency unions using an augmented version of the gravity model and focusing on two samples, the world and Africa. Our empirical findings suggest that, in principle, membership in a currency union should benefit Africa as much as it does the rest of the world. In addition, we find evidence from both samples that the effect of currency unions on trade is large, almost a doubling; currency unions are associated with trade creation, increase price co-movements among members, and make trade more stable; and longer duration of currency union membership brings about more benefits, although with some diminishing returns.
Mr. Rodolfo Luzio, Mr. Steven V Dunaway, and Mr. Martin D Kaufman
This paper presents a simple framework that illustrates the link between skill-based wage differentiation and human capital acquisition given skill-biased technical progress. The analysis points to the economic costs resulting from labor market and income redistribution policies that prevent the skill premium from playing its role in fostering human capital accumulation and the adoption of new technologies. The study compares key economic indicators among Canada, France, Germany, the United Kingdom, and the United States. Differences in wage differen-tiation and investment in new technologies among these countries could be related to policies affecting labor markets; such practices may reflect social choices.
Mr. Lamin Y Leigh
With the emergence of the rapidly expanding literature on endogenous growth, the relationship between financial development and economic growth has received a new source of inspiration. Recent cointegration techniques that focus on the estimation and the identification of long-run economic relationship(s) between data variables are particularly appropriate to the study of long run endogenous growth models. This paper has applied these techniques to the Singapore data using a supply-side framework. By and large, the econometric analysis in this paper has yielded results that are in line with predictions of endogenous growth models. In particular, we find that financial development positively affects both transitional and long-run growth in Singapore.